Secret carbon trading agreement in Malaysia can reap dire consequences for Indigenous Peoples for generations to come
On 28 October 2021, the Sabah State Government signed the Nature Conservation Agreement (NCA) with the shell company Hoch Standard Pte Ltd (HSPL)[i]. The NCA was signed in secrecy and the Sabahans did not know of it until the news service Mongabay broke it 12 days later, on 9 November[i].
Since then, the agreement has received more and more criticism from civil society, Indigenous Peoples, NGOs, local communities and state officials, while the proponents themselves have tried to keep as much information hidden as possible.
The NCA gives the Singaporean company HSPL commercial monopoly rights over all carbon and other natural capital in two million hectares of Sabah’s forest for 100 years, with the option to renew[i]. While the immediate goal of the deal is carbon trading, the agreement grants the company commercial rights to all natural resources, excluding oil and gas, timber, and mineral resources[i].
The agreement grants a wide frame of rights, but also covers an extremely large area that is equal to 27 per cent of Sabah’s area, accounting for approximately half of the state’s forest area. It is still unknown exactly which land the agreement covers, but the intention is for it to be in the Totally Protected Areas of Sabah[i].
[see the infographic at the end of the article for a detailed explanation]
Violations of Indigenous Peoples’ rights and practices
The NCA has from the get-go been in violation of the rights of the Indigenous Peoples of Sabah. The forest areas suspected to be covered in the agreement are, for a large part, on the ancestral lands and territories of Indigenous Peoples[ii].
The agreement itself is an example of an ongoing commodification of nature and the privatization of collective heritage[ii]. This is not only a problem as the deal presents itself as part of a green economy, but, in fact, also stands in contradiction to natural justice and in opposition to the worldview of the Indigenous Peoples in Sabah who believe that the land is only lent to them by future generations, rather than private, commercial ownership of it. However, ongoing commercialization projects force Indigenous communities to use land titling as a strategy to protect their territories.
The process of designing the agreement has also ignored the Indigenous Peoples’ right to be part of decisions concerning their traditional territories, lands and natural resources[ii]. Further, the agreement itself doesn’t include any consideration of their right to self-determination or free, prior and informed consent (FPIC), and these rights are therefore likely to be violated further[ii], as are their rights to access to land, health, well-being, housing and food security[ii]. All these are rights secured in the UN Declaration on the Rights of Indigenous Peoples (UNDRIP) which Malaysia is a party to[ii].
The secrecy and uncertainty as to what exactly is in the agreement and precisely which forest areas are covered is also an issue for Indigenous Peoples as they don’t know which peoples and their lands will be affected and how.
To uncover more about the consequences of the NCA for Sabah’s Native communities, Adrian Lasimbang, Executive Director of the Right Energy Partnership with Indigenous Peoples, filed a case at the Sabah High Court to request information. Lasimbang won the suit and was provided with documents on 19 January 2022[i].
An agreement riddled with issues and failed logic
The documents Lasimbang obtained, along with leaked information, have been used to analyze the agreement which has uncovered a wide array of falsehoods and problems.
An independent study has found that the NCA is fundamentally flawed as the agreement is to trade carbon from Totally Protected Areas and lacks “additionality”[i], referring to the basis of carbon trading which is to market additional carbon sequestered by the restoration of forest areas. This, however, is unlikely in the case of Totally Protected Areas[ii], where, following Malaysia’s National Forestry Act, National Parks Act and Wildlife Conservation Act[iii], the expectation is that forest conservation is already taking place and will continue even without the funding from carbon credits. Thus, the carbon sequestering provided by the NCA cannot be classified as additional, which conflicts with the principles of carbon trading.
The independent study report also concluded that certification under any internationally recognized carbon standard is not probable for the NCA as it is unlikely that it can derive sufficient additional revenue to cover the cost of restoration[ii], which is completely antithetical to the agreement.
Several other concerning problems are exposed in a fact sheet prepared by the Carbon Sovereign Sabah Coalition[iv]. These include, among others, that:
- the NCA is governed by both the laws of Singapore and Sabah,
- the deal cannot be changed or canceled for present and future Sabah governments,
- due diligence regarding the company HSPL has been severely lacking, and
- the rights granted are extensive and vague as “non-carbon” natural capital is not clearly defined or limited in the agreement leaving room for broad interpretations[iii].
Further, the NCA appears to be in contradiction with existing domestic legislation, such as Sabah’s Forest Enactment (1968), the Sabah Biodiversity Enactment (2000) and the Malaysia Contracts Act (1950)ii.
These, and other, criticisms have also been recognized by the Sabah Government.
The Sabah Attorney-General issued a press statement on its behalf on 9 February 2022[ii]. In the statement, the Attorney-General required several welcome actions, including an amendment to the NCA to address the long list of technical and legal issues, further investigation into HSPL, ensuring that FPIC is obtained from all affected Indigenous communities, and that the unfair and absurd contract terms are removed[ii].
Corruption, secrecy, and shell-corporations
It’s not just the agreement that has received criticism, but the process of its development has as well, which has been described as opaque and shrouded in corruption. The agreement was signed in secrecy, it has been a struggle for its opponents to obtain information regarding the deal, and it is still unclear which areas are covered in it.
The men behind the deal are Sabah’s Deputy Chief Minister Datuk Jeffrey Kitingan and Mr. Stan Lassa Golokini, who signed the deal on behalf of the company. Kitingan signed as witness for both the company and government[i].
It is not the first time the two men have been involved in shady business dealings[i].
Records show the two having worked closely together 30 years ago managing the Sabah Foundation, a business adventure infamous for being involved in questionable schemes, scandals, foreign shell companies, and being unable to account for one billion USD[ii].
Private reports inform that Kitingan has used threats of pulling out of the government coalition and bringing it down to get other government stakeholders to sign the NCA[i]. Further, Kitingan has not brought the NCA before the State Legislative Assembly (DUN), a standard practice in such deals, as he argues it is not necessary in this case, claiming it doesn’t require any law-making procedure[ii]. This decision, however, has received criticism and demands have been made that the DUN gets the opportunity to vote on the NCA[ii].
Additionally, Golokin, for his part, signed the NCA for the HSPL on the authority of Dr. Ho Choon Hou, however diligence has shown that Dr. Ho is neither a director nor shareholder in HSPL and therefore has no legal authority at the shell company[ii]. This has led the Attorney-General to declare that the letter in which Dr. Ho appoints Golokin to sign the NCA is “null and void”[i].
The company itself is also called into question as reports show that HSPL is one entity in a cluster of shell companies, owned entirely by a British Virgin Island company called Lionsgate Ltd[ii].
Further, HSPL is shown to have only USD 1,000 of paid up capital, no staff, no physical offices, no record of business, and neither the substantive experience, nor the qualifications required to implement deals such as these[i], [ii]. Through the NCA, the company is entitled to 30 per cent of the gross revenue, but it is the Sabah Government which will cover the management costs of generating carbon credits[iii].
Despite these numerous critiques and demands from civil society, the Attorney-General and others, Kitingan announced the start of the implementation of the NCA in July 2023 with a pilot area of 75,000 hectares of Totally Protected Forest Reserve called Nuluhon Trus Madi[iv].
The resident Indigenous communities and ecotourism stakeholders have not been informed and FPIC was not obtained[iii].
As of September 2023, the NCA stakeholders have yet to comply with due diligence requirements[iii].
In response, Lasimbang has announced his intention to renew legal action[iii]. The UN special rapporteur for Indigenous Peoples’ Rights and the UN Working Group on Business and Human Rights have also been alerted by civil society.
IWGIA calls on the Sabah State Government and the Government of Malaysia to annul the NCA agreement immediately and to uphold and protect the rights of its Indigenous population.
[ii] UN Special Rapporteur Letter - Final_Revised.pdf
[iv] What is the Nature Conservation Agreement (NCA) 2023 infographic revised.pdf (see infographic below)
Top photo: Indigenous community members in their village in Sabah. Credit: Signe Leth / IWGIA
Second photo: River running through Indigenous forest land in Sabah. Credit: Signe Leth / IWGIA
Last photo: An Indigenous woman working in a rice field in a community in Sabah. Credit: Signe Leth / IWGIA
This article was written and researched for IWGIA by Frida Ravn Rosling